Tuesday, November 17, 2015

An autumn credit crunch was expected to hit many independent U.S. oil producers, starving the industry of billions of dollars and further denting company budgets and drilling plans.

But banks that adjust their loans to energy companies every six months based on the oil price and volumes of reserves were more lenient than many expected this time, leaving producers with more cash for drilling and allowing them to supply more oil to a market already flush with excess crude.

The biannual process, known in the industry as redetermination, shaved only 4 percent off bank loans to oil and gas companies, according to a Reuters analysis of loan data, surprising experts who had expected deeper cuts because of a protracted oil price rout.

It offers cash-starved energy firms a lifeline right when oil prices are back near six-year lows around $40 per barrel because of global oversupply.

Of the 37 U.S. oil and gas producers tracked by Reuters that hold credit lines backed by their reserves, 15 had credit reduced, seven saw an increase and 12 saw no change. Two said they expected to keep their credit unchanged and one said it expected a reduction.
In total, the producers retained access to $30.7 billion in credit this fall, $1.4 billion less than in the spring.

The cuts were less steep than many had expected in part because banks were encouraged by producers' hedges that locked in higher prices, their ability to cut costs during a downturn and increases in production.

Lenders at large were also more lenient than Wells Fargo, the nation's fourth largest bank, which said in October it had cut energy credit lines by 15 percent on average, priming some analysts to expect similar lending cuts across the industry.

"If credit lines stay strong, companies will keep drilling and keep inventories higher and oil lower," said Chris Metcalfe, director of finance and investor relations at Gran Tierra Energy Inc, a small conventional oil producer which had its credit line increased by $50 million to $200 million in September....MORE